The plans laid out in ex-chancellor Kwasi Kwarteng’s mini-budget have been shredded by new Chancellor Jeremy Hunt, causing uncertainty over a baffling few days for British politics. Here, we break down the key details you need to know.
The mini-budget caused widespread concern with the value of the sterling dropping against the dollar. This caused an increase in import costs which put further pressure on inflation as the cost of living has already risen 10.1 per cent following Russia’s invasion of Ukraine among other factors. This is why the Bank of England, which operates separately from the government, intervened following the mini-budget announcement.
Energy relief
The government must balance public spending with borrowing and taxation in order to deliver an effective budget plan, but their pledge to help people with their energy bills, announced in September’s mini-budget, gave no explanation as to how this would be funded. The result: Hunt has slashed the two-year energy price freeze, meaning a typical energy and gas using household will only have bills capped at £2,500 until April 2023, giving some relief over the winter with no guarantees thereafter.
At this stage, there is uncertainty surrounding UK energy price security, so the government will be working to build and deliver new measures from April next year. For households that do not qualify for further government support, a typical annual energy bill could reach as high as £4,347 by spring, according to Cornwall Insight. This figure will be contingent on oil and gas prices for domestic energy suppliers.
In terms of businesses, the help outlined in the mini-budget was only ever promised for six months anyway, with following support aimed at “those most affected.” This will be worrying for businesses looking to manage cashflow if oil and gas prices don’t steady and there are no further relief measures.
The business discount is set at 21.1p per kWh for electricity and 7.5p for gas. Companies on a fixed price contract are eligible if their deal started after April 2021, and those on variable tariffs will receive an automatic discount on each unit of energy used.
Tax
A number of tax plans outlined in the mini-budget have been reversed by Hunt. The rise in corporation tax from 19% to 25% has been reinstated, and gone is the removal of a 45 per cent top rate of income tax for high earners, alongside plans to cut basic income tax rates from 20 to 10 per cent in April 2023. Hunt has also reversed a freeze on alcohol duty and VAT which would have meant tax-free shopping for non-UK visitors.
However, the reverse in the 1.25 per cent national insurance rise announced in the mini-budget has been retained, along with no stamp duty on the first £250,000 of a property’s value.
Other changes
There has been a great deal of talk surrounding state pensions, which Truss announced today will rise in line with inflation of more than 10 per cent.
Despite mounting pressure from the public and environmental groups, there are currently no advances on additional funding for improving the energy efficiency of homes. Energy efficiency is a key solution that will protect households from rising gas and energy prices by reducing usage.
Government measures taken over the coming months will likely be aimed at protecting those most vulnerable and reducing government spending where possible in order to fund relief schemes and subsidise roaring energy prices.
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